What Does Size Mean Under Bid And Ask?

If you want to find consistency as a penny stock trader, never assume that something is so basic that you can castor over information technology. That includes the bid and ask.

Start with the basics first. It'due south how yous build a ameliorate noesis account. Don't underestimate how valuable your educational activity is when information technology comes to the marketplace.

Even if y'all've never traded stocks, you've used the concept of a bid and enquire.

This post will give yous a skillful basic understanding of the bid and ask prices, bid and ask size, and the bid-ask spread.

Let's get to it…

Table of Contents

one Bid and Ask
- 1.one What's the Departure Between Bid and Inquire?
- i.2 How Ownership and Selling Piece of work
  - 1.2.1 Buying and Selling Stocks
  - ane.2.2 When to Focus on Bid and Ask Prices
ii What Factors Affect Bid Toll and Ask Price?
- 2.one Volume
- 2.2 Liquidity
3 Examples of Guild Types to Execute on the Bid and Ask
- 3.i #1 Market place Lodge
- 3.2 #2 Limit Orders
- 3.three #3 Agreement Spreads
- 3.four #4 Bid and Ask Size
  - 3.four.1 Importance of Bid-Ask Size
- 3.five Bid-Ask Spread in Options
- 3.6 Take Advantage of StocksToTrade Features
4 Bid and Ask Spread Trading Strategies
5 What Is Best Bid and Best Ask?
6 Often Asked Questions About Bid vs. Ask
- vi.1 Why Is the Bid Higher Than the Ask?
- 6.2 Can I Buy a Stock Below the Enquire Cost?
- 6.iii Who Benefits from the Bid-Ask Spread?
- half-dozen.4 What Are the Roles of Bid Price and Ask Price in Liquidity?
- vi.5 What Are the Numbers Beside the Bid and Ask?
- 6.half-dozen What Does It Hateful When the Bid and Ask Are Close?
7 Conclusion virtually bid and inquire

Bid and Ask

Hither's how information technology works in the stock market:

The bid is the highest electric current price on record that a trader is willing to pay for i share.
The ask is the current everyman cost on record that a trader's willing to accept for i share.

It's important to understand that there are other bid and ask prices in the order book or queue. They're waiting for the current price to get knocked off by an order execution or another trader to offer a higher bid or a lower enquire.

To understand this, you lot accept to be articulate on how buying and selling work.

So allow's get into some basics…

What's the Difference Between Bid and Ask?

What does bid mean? Information technology'due south the corporeality someone's willing to pay to purchase something. Call up auctions when someone bids on an detail. Simply it can be annihilation — a house, a car, or a share in a visitor.

The asking price, or ask, is the cost that a seller wants in exchange for an detail.

Let's take a look at an example to put a bid and ask into a familiar context.

How Buying and Selling Work

Let's say you desire to purchase a house … Yous'd await for a house for auction in your price range. The toll the business firm lists for is the seller'due south asking price. That'south the ask.

Just you remember you tin can get the firm for less. So you put in an offer, or a bid. If information technology'south a buyers' market place, you lot may get the house for less than the seller's asking.

However, if you're in a hot real estate market with lots of buyers and not every bit many houses to choose from, you lot'd probable offer the seller the full request toll or perchance more.

Buying and Selling Stocks

In essence, buying and selling on the stock market is the aforementioned. Buyers put in bids for the price they want to buy the shares for, and the sellers put in an ask for shares they want to sell. If a stock is in high demand, buyers will buy at the inquire price.

If there's low demand and a lot of supply, then the sellers will sell to the buyers on the bid.

However, just like when negotiating the auction of a house, a real estate professional is sometimes needed to bring the parties together … In the stock market place, it'due south a market maker who brings buyers and sellers together betwixt the bid and ask.

For more in-depth data on market basics, check out my free penny stock guide. And check out this post to acquire about market makers and other players in the stock market game.

When to Focus on Bid and Ask Prices

Now we're getting to the good stuff. Just this is where it tin become a little complex, so I'll cover the basics.

Quick note: Nigh everything y'all need to know about bid and ask is in "The Consummate Penny Stock Form" by my student Jamil Ben Alluch (I wrote the frontward). That includes an in-depth explanation of what I'm nearly to share with you.

At the about basic level, you lot should focus on the bid and ask when the price is:

Close to key support or resistance levels.
Close to your planned profit or loss targets.
Close to daily highs or lows.

As you get deeper into your trading educational activity, you'll acquire about Level 2. That's a information feed that provides existent-fourth dimension merchandise details. Y'all can use it to see the order book or queue (including bid, inquire, and social club size) for any given stock.

What Factors Affect Bid Cost and Ask Cost?

sykes and kyle williams on laptop — © Millionaire Media, LLC

Volume

Volume is the number of stock shares that trade in a given time frame. I adopt to merchandise stocks that take college-than-boilerplate book for the day.

Stocks with no volume usually take large bid-ask spreads. That means at that place's a large price gap between the bid and ask. So you lot'll either be buying high to make it or selling low to exit.

Liquidity

The amount of volume creates liquidity — how easy it is to become out in and out of a position. When a stock has lots of volume, there are a lot of buyers and sellers to move the price effectually.

With high liquidity the bid and ask prices are usually much closer together.

Now you know the basics of buying and selling. Just did you know at that place are different types of stock orders? This is crucial information. Let's check it out…

Examples of Gild Types to Execute on the Bid and Ask

#1 Marketplace Order

When you identify a market order, your order executes at the recorded price at the time of execution. This applies to both buying (you pay the electric current enquire) and selling (you receive the electric current bid).

The corporeality you actually pay is determined by the inquire cost when your order executes.

With a market lodge, y'all pay the ask price — the lowest recorded available toll — when your society reaches the front of the queue.

Every bit a penny stock twenty-four hours trader, I never trade using marketplace orders. The reason? I don't have command over the purchase price.

If the price moves the wrong style fast, my order could execute far exterior my planned merchandise setup. There'due south also the potential for price manipulation by market makers.

#ii Limit Orders

This is the blazon of order I use and teach my students to use. With a limit club, you set the cost at which your order will be executed. Your broker has to execute your order at your limit price (or better). If the order can't exist executed at your limit toll, it won't get executed.

Plus, you can cancel a limit society at whatsoever time earlier it gets filled. This means you can decide to expect for the price to come to y'all. Or, if the bid and enquire prices move away from your limit, you can cancel.

A limit order ways your position might not get filled (or might get partially filled). Only it also ensures that y'all won't trade at a price outside your trading plan.

#3 Understanding Spreads

A close spread is a sign of relative stability in a stock'south price. The bigger the spread, the greater the volatility.

A market maker is a kind of broker or dealer who brings liquidity to the market past filling orders. They brand a profit past taking advantage of the bid-ask spread. With the evolution of electronic trading, a matching engine fills virtually orders. It matches buy and sell orders electronically.

Market makers can fill up orders between the bid and the ask. This can happen for a number of reasons. One common reason is that a market maker purchases or sells shares betwixt the bid and ask to assistance maintain liquidity.

So how does the market maker profit from the spread? Good question.

Market makers take on hazard by holding shares to purchase or sell. They can disperse their shares between the bid and the enquire and turn a profit on the difference.

#iv Bid and Inquire Size

The bid size is the number of shares a buyer (or marketplace maker) is willing to buy at the bid cost. The higher the bid size, the more shares traders are willing to buy at that price.

The inquire size is the number of shares a seller is willing to sell at the ask price. The higher the ask size, the more shares that are bachelor from traders who want to sell at that price.

Both bid and enquire sizes tin also limit the number of shares you tin buy at whatever given price. This is of import. When I talk about getting fractional execution, this is what I'm talking virtually.

Let's say you lot try to buy five,000 shares of a stock at $1, but the inquire size at $i is 2,000 shares. The next everyman ask is $ane.05. For y'all to buy all 5,000 shares you'd have to pay more for the three,000 extra shares you demand to fill up your order.

Let's make this super clear … Since you're using a limit order, your society will exist partially executed. You get the 2,000 shares at the toll ($i) you want. If you're buying into a multi-month breakout and your trading program allows for it, you can purchase the other shares at a higher price…

Simply yous take to place another limit guild at the higher price.

Importance of Bid-Inquire Size

Bid and ask size are of import for a few reasons…

If there'south a discrepancy between the total bid and enquire sizes, filling orders becomes hard. In most cases, market makers or specialists will footstep in and purchase or sell shares to maintain liquidity. Otherwise, the imbalance can force a halt in trading.

Bid and ask sizes give you an indication of supply versus demand. If bid sizes are higher than ask sizes, the buyers have strength at a given cost.

The opposite is true for enquire sizes: If ask sizes are higher than bid sizes, sellers have strength at a given price.

Bid-Ask Spread in Options

The bid-ask spread in options can exist much larger because options tend to be less liquid. If you're unfamiliar with options, they're a fiscal musical instrument that gives you lot the right to purchase shares at a certain price before a sure appointment.

Options are usually more than liquid if the underlying stock is liquid.

This is an entirely dissimilar game from penny stocks. And options aren't my matter. But in that location's 1 thing that options trading and trading penny stocks accept in common: Preparation is key.

So while I'd rather see you lot learn to trade penny stocks, if yous choose to get into options then educate yourself and study like crazy.

Encounter these posts:

Day Trading Options Guide: How to Find Better Options Trades
Options Trading Basics: Strategies and Examples of How it Works

My top student Marker Crooke has evolved into an options trader. Check out what he'due south learned in this webinar and how y'all can acquire from him.

Take Advantage of StocksToTrade Features

It's no secret that I'm a huge fan of StocksToTrade. I helped design the platform and I'm an investor. It has and then many cool features, I could easily double the length of this post.

Since this post is near bid and ask, I desire to share a video (three minutes and xiii seconds of pure awesomeness) featuring my colleague Tim Bohen. Tim is the pb trainer for StocksToTrade'due south mentorship programme, SteadyTrade Team.

Watch the video because the Level 2 Book Entry bar is ALL about bid and ask live data.

One time yous set up your StocksToTrade account, make sure y'all spend time watching Tim Bohen'due south training videos. They tin help reduce the time it takes you to get familiar with the platform. His videos are excellent.

You tin can get a xiv-twenty-four hours trial for just $7 today.

Bid and Enquire Spread Trading Strategies

The best-known strategy for trading the bid-ask spread is scalping. These traders attempt to buy a security on the bid and sell it on the enquire, taking advantage of the spread.

Just other buyers and sellers have to fill their orders for this strategy to work.

Scalping involves multiple trades within a twenty-four hours, sometimes on the aforementioned security again and again. This isn't a strategy I recommend. You can cease up property a stock and not being able to sell your position unless it's for a large loss.

What Is Best Bid and Best Inquire?

tim sykes grand canyon — © Millionaire Media, LLC

The best bid is the highest price a heir-apparent is willing to pay for the security. The all-time ask is the lowest cost that a seller'south willing to accept.

Other orders beneath the all-time bid or to a higher place the best enquire sit in the queue until traders purchase up all the bachelor shares at the best ask or sell into all the best bids.

Frequently Asked Questions Virtually Bid vs. Inquire

Why Is the Bid Higher Than the Ask?

If the bid volume is higher than the ask, it shows in that location's need for the stock and the cost will likely go up. If there'southward an order for a higher price than the ask, information technology will probable get executed at the ask cost or above if the price is moving upwardly chop-chop.

Tin I Purchase a Stock Below the Ask Price?

Aye, with a limit social club you lot can set the amount you're willing to pay for the shares y'all want. But your order will only get filled if the stock hits your bid cost.

Who Benefits from the Bid-Ask Spread?

Marketplace makers can potentially profit from the deviation between the bid and ask by selling some of their own shares and collecting the deviation.

What Are the Roles of Bid Price and Ask Cost in Liquidity?

If the bid price and inquire price are close together it usually means the stock is very liquid or heavily traded. This means you can have a better chance of getting your social club filled at the price you want to pay or receive.

What Are the Numbers Beside the Bid and Ask?

The number beside the bid is the number of shares traders want at that price or the bid size. The number beside the ask is the number of shares selling at that cost, known equally the inquire size.

What Does It Mean When the Bid and Inquire Are Shut?

When the bid and ask are shut to the same corporeality, information technology ways there's volume and liquidity in the stock. It also means in that location won't exist such dramatic price swings with each purchase and sell.

Conclusion virtually bid and ask

Bid and ask for stocks is the equivalent of an offer and an asking price. These are terms yous should not simply know just understand thoroughly. Report, study, study. And then study some more than.

I suggest you get a StocksToTrade subscription if you don't already accept 1. And then spend some time newspaper trading to learn how things work. Get a Level 2 subscription — that way y'all tin can run across all the action and start to understand entry and exit points better.

I also encourage yous to use for the Trading Challenge. That's where I teach you how to accept advantage of the data in this post and then much more than. It'due south where you can work to go a self-sufficient trader.

How do you apply bid and enquire in your trading setups? Allow me and your fellow traders know. Leave a annotate!